Pricing Autonomy, Rational Classification, and Unjust Enrichment: Supreme Court Validates Coal India’s Interim Coal Policy and Extends the Unjust Enrichment Bar to Price-Refund Claims

Introduction

The Supreme Court of India, in Coal India Ltd. and Ors. v. M/s Rahul Industries and Ors., 2025 INSC 1103 (12 September 2025), has decisively settled long-standing controversies arising out of the post-Ashoka Smokeless interregnum in coal pricing. The Court (per J.B. Pardiwala, J.; R. Mahadevan, J. concurring) set aside the Calcutta High Court’s judgment which had struck down Coal India Limited’s (CIL) Interim Coal Policy of 15 December 2006 that imposed a 20% increase over the notified price for linked consumers in the non-core sector.

The case sits at the confluence of constitutional norms (Articles 14, 39(b)), economic policy deference, sectoral regulation under the Colliery Control Orders (CCO 1945 and 2000), and restitutionary limits on refunds from public exchequer. It also crisply distinguishes the reach of the Court’s prior ruling in Ashoka Smokeless Coal India (P) Ltd. v. Union of India (2007) 2 SCC 640 (invalidating coal e-auctions) and reaffirms the permissibility of dual pricing between core and non-core sectors as laid down in Pallavi Refractories v. Singareni Collieries Co. Ltd. (2005) 2 SCC 227.

At the heart of the dispute were smokeless fuel manufacturers (non-core sector, linked consumers) who challenged (i) CIL’s authority to issue an interim pricing policy after Ashoka Smokeless and (ii) the constitutionality of the 20% increase—seeking also a refund of the “excess” with interest. The Supreme Court not only upheld CIL’s power and the classification but also announced an important clarification—extending the doctrine of unjust enrichment to bar price-refund claims against State PSUs absent robust proof of non pass-through.

Summary of the Judgment

Authority to Notify Interim Prices: The Court held that after deregulation under the Colliery Control Order, 2000, coal price fixation vests in coal companies; Ashoka Smokeless did not curtail this power. The expert committee envisaged there was about supply allocation, not price. CIL had the competence to notify the Interim Coal Policy (ICP) on 15.12.2006.
Validity of 20% Increase for Linked Non-Core Sector: The increase was a constitutionally valid instance of reasonable classification between core and non-core sectors. Applying the rational nexus test (not proportionality), the Court found the measure aimed at sustainable operations and supply (common good), not profiteering.
No Refund; Unjust Enrichment Applied: With ICP upheld, refund was moot. Even otherwise, refund would be denied because respondents failed to prove they had not passed on the added cost to consumers. The Court expressly extended unjust enrichment principles (Mafatlal Industries v. Union of India) beyond tax/duty to price-refund claims against State PSUs and held that cursory CA certifications without complete transactional proof are insufficient.
Limited-Notice Appeal Scope Enlarged: Relying on Biswajit Das v. CBI (2025), the Court enlarged the scope beyond the limited notice on unjust enrichment to decide the broader question of ICP’s validity, in the interests of complete justice.
High Court’s Errors Corrected: The Calcutta High Court’s reliance on Maa Mundeshwari (Patna HC) and its view that ICP lacked authority and rationale were rejected as superficial and contrary to the statutory scheme and binding precedents.

Factual and Policy Backdrop

Coal was nationalised in the 1970s and CIL (with subsidiaries) became the dominant PSU supplying coal. Historically, prices were controlled by the Central Government under the CCO 1945, including price and supply controls. In 2000, CCO 2000 deregulated price fixation—transferring it from the Central Government to coal companies—while the Centre retained direction-making power to regulate disposal/supply (Clause 6).

The sector used a “linkage” mechanism to match consumers to mines, and differentiated consumers into core (power, steel, cement, etc.) and non-core (including smokeless fuel manufacturers), with core consuming the lion’s share. In 2003–2004, e-auctions were introduced to improve transparency and curb black-market distortions; however, Ashoka Smokeless (2006) struck down e-auctions as unconstitutional (variable market-driven prices abdicated the State’s obligation to fix fair and determinable prices under Articles 14 and 39(b)).

To bridge the policy vacuum between 01.12.2006 (Ashoka) and the New Coal Distribution Policy (October 2007; operationalised by March 2008), CIL issued the Interim Coal Policy (15.12.2006), setting prices for linked non-core consumers at 120% of the pre-auction notified price and 130% for non-linked non-core consumers. Coal was removed from the Essential Commodities Act list on 26.12.2006; however, the Court’s analysis anchored primarily in the constitutional framework and CCO 2000.

Detailed Analysis

Precedents and How They Shaped the Decision

1) Ashoka Smokeless (2007) 2 SCC 640

What it held: E-auctions were unconstitutional because they introduced variable, market-determined prices that prevented consumers from forming stable business strategies and reflected profit-maximisation, not fair pricing for an essential resource (Articles 14 and 39(b)).
Crucial clarification relied on here: Ashoka Smokeless drew a sharp line between price and supply: under CCO 2000, the Central Government cannot fix or influence price (deregulated), but can regulate supply/disposal (Clause 6). The expert committee direction was to evolve a supply policy. It did not disable coal companies from fixing prices.
Relevance to ICP: The Supreme Court held that Ashoka Smokeless never restrained CIL’s price-notification power. ICP was not a subversion of Ashoka; it was consistent with the statutory scheme post-CCO 2000.

2) Pallavi Refractories (2005) 2 SCC 227

What it held: Dual pricing between core and non-core sectors is permissible and non-arbitrary if it rests on rational differentiation: core sectors are of intrinsic national importance, consume bulk coal, and pass cost increases economy-wide; hence preferential treatment is reasonable.
Relevance here: The Court reaffirmed Pallavi to uphold the 20% increase for linked non-core consumers, applying the rational nexus test to classification-based challenges.

3) Price-fixation and judicial restraint line: Cynamide (1987) 2 SCC 720; Sitaram Sugar (1990) 3 SCC 223; Balco (2002) 2 SCC 333; Kirloskar Ferrous (2025) 1 SCC 695

Core principle: Price fixation/economic policy is the executive’s domain. Courts review legality and constitutional compliance (fairness, relevance of factors, no hostile discrimination), not the wisdom of economic choices.
Application: The Court refused to substitute its judgment for CIL’s pricing judgment; it inquired only whether ICP had a legitimate aim, used a reasonable classification, and had a rational connection to the aim.

4) Natural Resources Allocation, In re (Presidential Reference) (2012) 10 SCC 1

What it clarified: Auctions are not a constitutional mandate. The touchstone is “common good” under Article 39(b). Courts respect executive wisdom on economic options, intervening only for constitutional infirmities (arbitrariness, discrimination).
Use in this case: The Court anchored ICP’s objective—sustaining operations and supply—as legitimately subserving common good, even if revenue or cost-recovery considerations feature (so long as not pure profiteering).

5) “Fair price” and reasonable returns: Meenakshi Mills (1974) 1 SCC 468; Prag Ice & Oil Mills (1978) 3 SCC 459

Rule distilled: The dominant purpose of control is equitable distribution at fair prices; producers’ profit cannot be the sole driver. However, reasonable returns are permissible when they serve continuity of supply and consumer interests.
Application: ICP’s 20% increase mitigated only ~1.2% of CIL’s operational cost inflation, evidencing a measured, non-profiteering approach tied to sustaining supply.

6) Refund and unjust enrichment: Mafatlal (1997) 5 SCC 536; Vyankatlal (1985) 2 SCC 544; Tetulia Coke (2011) 14 SCC 624; Domco (2024 SCC OnLine SC 181)

Mafatlal/Vyankatlal principle extended: A claimant seeking refund must prove non-pass-through; otherwise refund is barred to avoid unjust enrichment. The State, as parens patriae, may retain funds where restoration to true payers is impracticable.
Distinguishing Tetulia/Domco: Those refunds flowed from specific interim orders and the striking down of e-auctions, not from a validly notified price. Here, ICP was upheld, and there was no robust evidence of non pass-through.

Legal Reasoning: Why the Court Ruled as It Did

A. CIL’s authority to issue the Interim Coal Policy

Statutory scheme: CCO 2000 removed Central Government’s price-fixing powers and left price determination to coal companies; the Centre retained only supply-direction powers (Clause 6).
Ashoka’s scope: The expert committee direction was to design a viable supply policy; it did not strip PSUs of pricing autonomy. Reading it otherwise would judicially re-regulate what the legislature deregulated—offending separation of powers.

B. Constitutionality of the 20% increase for linked non-core sector

Classification test chosen: Since the challenge alleged classificatory arbitrariness (core vs non-core), the Court applied the rational nexus test (State of TN v. River Interlinking Agriculturists Assn. (2021)). Proportionality is reserved for non-classificatory arbitrariness.
Legitimate aim: Sustain CIL’s operations, maintenance and development of mines to ensure adequate supply—a common good objective under Article 39(b).
Rational connection: A limited increase on a small subset (linked non-core) mitigated only 1.2% of the 23.84% cost inflation—minimising economy-wide pass-throughs that would follow a core-sector increase. This tracks Pallavi’s logic on protecting sectors with national cascading effects.
No profiteering: The measured quantum and targeted scope evidenced a fair price approach. Ashoka’s anti-profiteering principle was not violated because ICP involved a fixed, notified price—not a variable, profit-maximising auction mechanism.

C. Linkage confers no equal-treatment right

The Court clarified that “linkage” was a logistical/administrative device, conferring no right to a particular price or supply source. It cannot collapse the core/non-core differentiation established in Pallavi Refractories.

D. Refund and unjust enrichment

Threshold point: With ICP upheld, refund does not arise.
Even otherwise: Refund would be barred absent compelling proof of non pass-through. The Court found the respondents’ evidentiary offerings (limited CA certifications; scant, uncertified invoices from a minority of parties) wholly inadequate for a refund out of public monies.
Doctrinal development: The Court explicitly extended unjust enrichment principles (traditionally asserted in tax/duty contexts) to price refunds against State PSUs—where the claimant must establish non pass-through with complete, transaction-level proof.
Undertakings and limited-notice orders: The Solicitor General’s 2007 undertaking in Somal Pipes could not override the sub judice challenge to ICP’s validity; nor could limited-notice constraints bar the Court from ultimately resolving the entire controversy (Biswajit Das, 2025).

Impact and Forward-Looking Significance

Pricing autonomy reaffirmed: Coal PSUs (and by analogy other commodity PSUs operating under similar deregulated frameworks) retain the authority to fix notified prices, including dual pricing, provided classifications are reasonable and objectives align with common good.
Ashoka Smokeless confined: Ashoka remains a beacon against variable, market-driven price abdication that impairs fair access and planning; it is not a bar on PSU-led notified pricing—nor a freeze of past notified prices.
Refined Article 14 toolkit: Courts will deploy rational nexus for classification-based price challenges; proportionality is reserved for non-classification arbitrariness. Policymakers should document objectives and link them clearly to chosen measures.
Refund litigation tightened: Claimants seeking refunds from State PSUs must produce transaction-complete, authenticated proof of non pass-through. Generic CA certifications will not suffice. This will likely curb speculative or windfall refund claims.
Public money prudence: The parens patriae rationale underscores that, where true sufferers cannot be identified, funds are better retained for public purposes than granted as windfalls to intermediate claimants.
Linkage demystified: With “linkage” declared non-rights conferring and historically replaced by NCDP, courts and stakeholders gain clarity: linkage cannot be invoked to flatten constitutionally legitimate sectoral distinctions.
Separation of powers reinforced: Courts will not reinsert price controls where the statutory scheme has deregulated them; executive economic choices stand unless constitutionally infirm.

Complex Concepts Simplified

Core vs Non-Core Sectors: Core sectors (power, steel, cement, etc.) are economically pivotal and consume bulk coal. Price increases here ripple across the economy. Non-core includes smaller or specialized industries (e.g., smokeless fuel).
Linkage: An administrative mechanism aligning a consumer to a coal source for supply convenience. It does not create legal rights to supply, price, or source, and was later discontinued.
Notified Price vs E-auction: A notified price is a fixed price set by the supplier (here, PSU). E-auction yields variable, demand-driven prices—rejected in Ashoka because it abdicated fair, determinable pricing of an essential resource.
Reasonable Classification (Article 14): Different treatment is constitutional if there is intelligible differentia and a rational nexus to a legitimate objective. Here, dual pricing protected the wider public from cascading cost increases.
Proportionality vs Rational Nexus: Proportionality is a stricter test used for non-classificatory restrictions; rational nexus suffices for classification challenges.
Common Good (Article 39(b)): State actions over material resources must serve society’s overall welfare. Sustaining supply through reasonable pricing—not necessarily the lowest possible price—meets this standard.
Unjust Enrichment & Refunds: A refund is barred if the claimant passed the burden to others (consumers). Robust, transaction-level evidence is needed to prove non pass-through. The principle now applies to price refunds from State PSUs, not just taxes/duties.

Key Takeaways

CIL had statutory authority under CCO 2000 to issue interim notified prices; Ashoka Smokeless did not curtail this power.
Dual pricing between core and non-core sectors is valid when grounded in rational nexus to a legitimate aim (sustained supply/common good).
Courts defer to executive economic policy; price fixation is reviewed only for legality, fairness, and non-discrimination—not for policy wisdom.
Refunds from public funds require rigorous proof; unjust enrichment bars price-refund claims absent clear evidence of non pass-through.
Undertakings or prior limited-notice orders do not foreclose full adjudication where justice demands or where policy validity is sub judice.

Conclusion

This decision is a pivotal restatement and refinement of India’s constitutional and administrative law on economic regulation. It confirms coal PSUs’ post-CCO 2000 pricing autonomy; consolidates the doctrinal permissibility of dual pricing based on rational, welfare-centric classifications; and firmly extends unjust enrichment limits to price-refund claims against State PSUs. The Court’s careful calibration—insisting on fair, determinable prices in lieu of unfettered market variability, yet allowing reasonable returns to sustain supply—harmonises Articles 14 and 39(b) with the practical imperatives of running essential-resource monopolies in the public interest.

Beyond coal, the ruling offers a roadmap for public-sector pricing of critical inputs: articulate a legitimate, welfare-driven aim; draw rational classifications; set fixed, determinable prices; and document the linkage between the measure and the aim. For litigants, it raises the bar on refund actions—demanding complete, verifiable proof of non pass-through—thereby safeguarding the public exchequer from windfall reversals and aligning restitution with equitable principles.